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Physics > Physics and Society

Title:
Bring your friend! Real or virtual?

Abstract: A monopolist faces a partially uninformed population of consumers,
interconnected through a directed social network. In the network, the
monopolist offers rewards to informed consumers (influencers) conditional on
informing uninformed consumers (influenced). Rewards are needed to bear a
communication cost. We investigate the incentives for the monopolist to move to
a denser network and the impact of this decision on social welfare. Social
welfare increases in information diffusion which, for given communication
incentives, is higher in denser networks. However, the monopolist internalizes
transfers and thus may prefer an environment with less competition between
informed consumers. The presence of highly connected influencers (hubs) is the
main driver that aligns monopolist incentives and welfare.

Comments:

38 pages, 4 figures

Subjects:

Physics and Society (physics.soc-ph); Social and Information Networks (cs.SI)